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Taxes Due 2012

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Taxes Due 2012

Taxes due 2012 3. Taxes due 2012   Lifetime Learning Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. Taxes due 2012 They are the American opportunity credit and the lifetime learning credit. Taxes due 2012 This chapter discusses the lifetime learning credit. Taxes due 2012 The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . Taxes due 2012 This chapter explains: Who can claim the lifetime learning credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. Taxes due 2012 What is the tax benefit of the lifetime learning credit. Taxes due 2012   For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. Taxes due 2012 There is no limit on the number of years the lifetime learning credit can be claimed for each student. Taxes due 2012   A tax credit reduces the amount of income tax you may have to pay. Taxes due 2012 Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Taxes due 2012 The lifetime learning credit is a nonrefundable credit. Taxes due 2012 This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. Taxes due 2012   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. Taxes due 2012 Can you claim more than one education credit this year. Taxes due 2012   For each student, you can elect for any year only one of the credits. Taxes due 2012 For example, if you elect to take the lifetime learning credit for a child on your 2013 tax return, you cannot, for that same child, also claim the American opportunity credit for 2013. Taxes due 2012   If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. Taxes due 2012   If you pay qualified education expenses for more than one student in the same year, you can choose to take certain credits on a per-student, per-year basis. Taxes due 2012 This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Taxes due 2012 Differences between the American opportunity and lifetime learning credits. Taxes due 2012   There are several differences between these two credits. Taxes due 2012 For example, you can claim the American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope Scholarship Credit was claimed counts toward the 4 years. Taxes due 2012 However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. Taxes due 2012 The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. Taxes due 2012 Overview of the lifetime learning credit. Taxes due 2012   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. Taxes due 2012 The details are discussed in this chapter. Taxes due 2012 Can You Claim the Credit The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return. Taxes due 2012 Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. Taxes due 2012 You pay qualified education expenses of higher education. Taxes due 2012 You pay the education expenses for an eligible student. Taxes due 2012 The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Taxes due 2012 Table 3-1. Taxes due 2012 Overview of the Lifetime Learning Credit Maximum credit Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available for an unlimited number of years Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Available for one or more courses Felony drug conviction Felony drug convictions do not make the student ineligible Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Note. Taxes due 2012 Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. Taxes due 2012 “Qualified education expenses” are defined later under Qualified Education Expenses . Taxes due 2012 “Eligible students” are defined later under Who Is an Eligible Student . Taxes due 2012 A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Taxes due 2012 You may find Figure 3-1, Can You Claim the Lifetime Learning Credit for 2013 , later, helpful in determining if you can claim a lifetime learning credit on your tax return. Taxes due 2012 Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. Taxes due 2012 Your filing status is married filing separately. Taxes due 2012 You are listed as a dependent on another person's tax return (such as your parents'). Taxes due 2012 See Who Can Claim a Dependent's Expenses , later. Taxes due 2012 Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). Taxes due 2012 MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Taxes due 2012 You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Taxes due 2012 More information on nonresident aliens can be found in Publication 519. Taxes due 2012 You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. Taxes due 2012 What Expenses Qualify The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Taxes due 2012 Generally, the credit is allowed for qualified education expenses paid in 2013 for an academic period beginning in 2013 or in the first 3 months of 2014. Taxes due 2012 For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 credit. Taxes due 2012 Academic period. Taxes due 2012   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Taxes due 2012 In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Taxes due 2012 Paid with borrowed funds. Taxes due 2012   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. Taxes due 2012 You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. Taxes due 2012 Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. Taxes due 2012 Student withdraws from class(es). Taxes due 2012   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. Taxes due 2012 Qualified Education Expenses For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. Taxes due 2012 The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. Taxes due 2012 Eligible educational institution. Taxes due 2012   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Taxes due 2012 S. Taxes due 2012 Department of Education. Taxes due 2012 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Taxes due 2012 The educational institution should be able to tell you if it is an eligible educational institution. Taxes due 2012   Certain educational institutions located outside the United States also participate in the U. Taxes due 2012 S. Taxes due 2012 Department of Education's Federal Student Aid (FSA) programs. Taxes due 2012 Related expenses. Taxes due 2012   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance. Taxes due 2012 Prepaid expenses. Taxes due 2012   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Taxes due 2012 See Academic period , earlier. Taxes due 2012 For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Taxes due 2012 You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Taxes due 2012 In the following examples, assume that each student is an eligible student at an eligible educational institution. Taxes due 2012 Example 1. Taxes due 2012   Jackson is a sophomore in University V's degree program in dentistry. Taxes due 2012 This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Taxes due 2012 Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. Taxes due 2012 Example 2. Taxes due 2012   Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Taxes due 2012 The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Taxes due 2012 Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Taxes due 2012 Donna bought hers at College W's bookstore. Taxes due 2012 Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. Taxes due 2012 Example 3. Taxes due 2012   When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Taxes due 2012 This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and student government. Taxes due 2012 No portion of the fee covers personal expenses. Taxes due 2012 Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Taxes due 2012 Therefore, it is a qualified expense. Taxes due 2012 No Double Benefit Allowed You cannot do any of the following: Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a lifetime learning credit based on those same expenses. Taxes due 2012 Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. Taxes due 2012 Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. Taxes due 2012 Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). Taxes due 2012 See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. Taxes due 2012 Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Taxes due 2012 See Adjustments to Qualified Education Expenses, next. Taxes due 2012 This image is too large to be displayed in the current screen. Taxes due 2012 Please click the link to view the image. Taxes due 2012 Figure 3-1 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Taxes due 2012 The result is the amount of adjusted qualified education expenses for each student. Taxes due 2012 Tax-free educational assistance. Taxes due 2012   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Taxes due 2012 See Academic period , earlier. Taxes due 2012   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Taxes due 2012 This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Taxes due 2012   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. Taxes due 2012 If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. Taxes due 2012   Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Taxes due 2012 Generally, any scholarship or fellowship is treated as tax free. Taxes due 2012 However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Taxes due 2012 The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Taxes due 2012 The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Taxes due 2012 You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Taxes due 2012 For examples, see Coordination with Pell grants and other scholarships, later. Taxes due 2012 Refunds. Taxes due 2012   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Taxes due 2012 Some tax-free educational assistance received after 2013 may be treated as a refund. Taxes due 2012 See Tax-free educational assistance , earlier. Taxes due 2012 Refunds received in 2013. Taxes due 2012   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Taxes due 2012 Refunds received after 2013 but before your income tax return is filed. Taxes due 2012   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Taxes due 2012 Refunds received after 2013 and after your income tax return is filed. Taxes due 2012   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Taxes due 2012 See Credit recapture, next. Taxes due 2012 Credit recapture. Taxes due 2012    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Taxes due 2012 You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Taxes due 2012 You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Taxes due 2012 Include that amount as an additional tax for the year the refund or tax-free assistance was received. Taxes due 2012 Example. Taxes due 2012   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. Taxes due 2012 You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. Taxes due 2012 You claimed no other tax credits. Taxes due 2012 After you filed your return, your child withdrew from two courses and you received a refund of $2,900. Taxes due 2012 You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. Taxes due 2012 The refigured credit is $1,280 and your tax liability increased by $580. Taxes due 2012 See instructions for your 2014 income tax return to determine where to include this tax. Taxes due 2012 If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Taxes due 2012 Amounts that do not reduce qualified education expenses. Taxes due 2012   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Taxes due 2012   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Taxes due 2012 The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Taxes due 2012 The use of the money is not restricted. Taxes due 2012 For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. Taxes due 2012 Coordination with Pell grants and other scholarships. Taxes due 2012   In some cases, you may be able to reduce your tax liability by including scholarships in income. Taxes due 2012 If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. Taxes due 2012 The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Taxes due 2012 Example 1—No scholarship. Taxes due 2012 Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. Taxes due 2012 Her AGI and her MAGI, for purposes of the credit, are $27,000. Taxes due 2012 Judy takes the standard deduction of $5,950 and personal exemption of $3,800, reducing her AGI to taxable income of $17,250 and her tax before credits is $2,156. Taxes due 2012 She claims no credits other than the lifetime learning credit. Taxes due 2012 In July 2013 she paid $700 for the summer 2013 semester; in August 2013 she paid $1,900 for the fall 2013 semester; and in December 2013 she paid another $1,900 for the spring semester beginning in January 2014. Taxes due 2012 Judy and the college meet all requirements for the lifetime learning tax credit. Taxes due 2012 She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. Taxes due 2012 She claims a $900 lifetime learning credit and her tax after credits is $1,256. Taxes due 2012 Example 2—Scholarship excluded from income. Taxes due 2012 The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. Taxes due 2012 Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. Taxes due 2012 If Judy excludes the scholarship from income, she will be deemed (for purposes of computing her education credit) as having used the scholarship to pay for tuition, required fees, and course materials. Taxes due 2012 Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. Taxes due 2012 Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. Taxes due 2012 Example 3—Scholarship included in income. Taxes due 2012 The facts are the same as in Example 2—Scholarship excluded from income. Taxes due 2012 If, unlike Example 2, Judy includes the $1,500 scholarship in income, she will be deemed to have used the entire scholarship to pay for room and board. Taxes due 2012 Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. Taxes due 2012 She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. Taxes due 2012 Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. Taxes due 2012 Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Taxes due 2012 This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Taxes due 2012 Sports, games, hobbies, and noncredit courses. Taxes due 2012   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Taxes due 2012 However, if the course of instruction or other education is part of the student's degree program or is taken by the student to acquire or improve job skills, these expenses can qualify. Taxes due 2012 Comprehensive or bundled fees. Taxes due 2012   Some eligible educational institutions combine all of their fees for an academic period into one amount. Taxes due 2012 If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. Taxes due 2012 The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. Taxes due 2012 See Figuring the Credit , later, for more information about Form 1098-T. Taxes due 2012 Who Is an Eligible Student For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). Taxes due 2012 Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim a lifetime learning credit for your dependent's expenses for that year. Taxes due 2012 For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. Taxes due 2012 You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Taxes due 2012 IF you. Taxes due 2012 . Taxes due 2012 . Taxes due 2012 THEN only. Taxes due 2012 . Taxes due 2012 . Taxes due 2012 claim an exemption on your tax return for a dependent who is an eligible student you can claim the lifetime learning credit based on that dependent's expenses. Taxes due 2012 The dependent cannot claim the credit. Taxes due 2012 do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the lifetime learning credit. Taxes due 2012 You cannot claim the credit based on this dependent's expenses. Taxes due 2012 Expenses paid by dependent. Taxes due 2012   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Taxes due 2012 Include these expenses when figuring the amount of your lifetime learning credit. Taxes due 2012    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. Taxes due 2012 Expenses paid by you. Taxes due 2012   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the lifetime learning credit. Taxes due 2012 If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the lifetime learning credit. Taxes due 2012 Expenses paid by others. Taxes due 2012   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Taxes due 2012 In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Taxes due 2012 If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Taxes due 2012 Example. Taxes due 2012 In 2013, Ms. Taxes due 2012 Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Taxes due 2012 For purposes of claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. Taxes due 2012 Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim a lifetime learning credit. Taxes due 2012 If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim a lifetime learning credit. Taxes due 2012 If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. Taxes due 2012 Tuition reduction. Taxes due 2012   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Taxes due 2012 If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Taxes due 2012 For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Taxes due 2012 Figuring the Credit The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. Taxes due 2012 The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). Taxes due 2012 However, that amount may be reduced based on your MAGI. Taxes due 2012 See Effect of the Amount of Your Income on the Amount of Your Credit , later. Taxes due 2012 Example. Taxes due 2012 Bruce and Toni Harper are married and file a joint tax return. Taxes due 2012 For 2013, their MAGI is $75,000. Taxes due 2012 Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. Taxes due 2012 She already has a bachelor's degree in history and wants to become a nurse. Taxes due 2012 In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. Taxes due 2012 Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. Taxes due 2012 Form 1098-T. Taxes due 2012   To help you figure your lifetime learning credit, the student should receive Form 1098-T. Taxes due 2012 Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Taxes due 2012 An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Taxes due 2012 However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. Taxes due 2012 When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Taxes due 2012   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Taxes due 2012    The eligible educational institution may ask for a completed Form W-9S, or similar statement to obtain the student's name, address, and taxpayer identification number. Taxes due 2012 Effect of the Amount of Your Income on the Amount of Your Credit The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). Taxes due 2012 You cannot claim a lifetime learning credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). Taxes due 2012 Modified adjusted gross income (MAGI). Taxes due 2012   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Taxes due 2012 MAGI when using Form 1040A. Taxes due 2012   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Taxes due 2012 MAGI when using Form 1040. Taxes due 2012   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Taxes due 2012 You can use Worksheet 3-1 to figure your MAGI. Taxes due 2012 Worksheet 3-1. Taxes due 2012 MAGI for the Lifetime Learning Credit 1. Taxes due 2012 Enter your adjusted gross income  (Form 1040, line 38)   1. Taxes due 2012   2. Taxes due 2012 Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Taxes due 2012       3. Taxes due 2012 Enter your foreign housing deduction (Form 2555, line 50)   3. Taxes due 2012       4. Taxes due 2012 Enter the amount of income from Puerto Rico you are excluding   4. Taxes due 2012       5. Taxes due 2012 Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Taxes due 2012       6. Taxes due 2012 Add the amounts on lines 2, 3, 4, and 5   6. Taxes due 2012   7. Taxes due 2012 Add the amounts on lines 1 and 6. Taxes due 2012  This is your modified adjusted  gross income. Taxes due 2012 Enter this amount  on Form 8863, line 14   7. Taxes due 2012   Phaseout. Taxes due 2012   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 10-18 of Form 8863. Taxes due 2012 The same method is shown in the following example. Taxes due 2012 Example. Taxes due 2012 You are filing a joint return with a MAGI of $112,000. Taxes due 2012 In 2013, you paid $6,600 of qualified education expenses. Taxes due 2012 You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). Taxes due 2012 The result is a $1,320 (20% x $6,600) tentative credit. Taxes due 2012 Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($1,320) by a fraction. Taxes due 2012 The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. Taxes due 2012 The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). Taxes due 2012 The result is the amount of your phased out (reduced) lifetime learning credit ($990). Taxes due 2012   $1,320 × $127,000 − $112,000  $20,000 = $990   Claiming the Credit You claim the lifetime learning credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Taxes due 2012 Enter the credit on Form 1040, line 49, or Form 1040A, line 31. Taxes due 2012 Note. Taxes due 2012 In Appendix A, Illustrated Example of Education Credits at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. Taxes due 2012 Prev  Up  Next   Home   More Online Publications
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The Taxes Due 2012

Taxes due 2012 1. Taxes due 2012   Traditional IRAs Table of Contents What's New for 2013 What's New for 2014 Introduction Who Can Open a Traditional IRA?What Is Compensation? When Can a Traditional IRA Be Opened? How Can a Traditional IRA Be Opened?Individual Retirement Account Individual Retirement Annuity Individual Retirement Bonds Simplified Employee Pension (SEP) Employer and Employee Association Trust Accounts Required Disclosures How Much Can Be Contributed?Limit. Taxes due 2012 When repayment contributions can be made. Taxes due 2012 No deduction. Taxes due 2012 Reserve component. Taxes due 2012 Figuring your IRA deduction. Taxes due 2012 Reporting the repayment. Taxes due 2012 Example. Taxes due 2012 General Limit Kay Bailey Hutchison Spousal IRA Limit Filing Status Less Than Maximum Contributions More Than Maximum Contributions When Can Contributions Be Made? How Much Can You Deduct?Kay Bailey Hutchison Spousal IRA. Taxes due 2012 Are You Covered by an Employer Plan? Limit if Covered by Employer Plan Reporting Deductible Contributions Nondeductible Contributions Examples — Worksheet for Reduced IRA Deduction for 2013 What if You Inherit an IRA?Treating it as your own. Taxes due 2012 Can You Move Retirement Plan Assets?Transfers to Roth IRAs from other retirement plans. Taxes due 2012 Trustee-to-Trustee Transfer Rollovers Transfers Incident To Divorce Converting From Any Traditional IRA Into a Roth IRA Recharacterizations When Can You Withdraw or Use Assets?Contributions Returned Before Due Date of Return When Must You Withdraw Assets? (Required Minimum Distributions)IRA Owners IRA Beneficiaries Which Table Do You Use To Determine Your Required Minimum Distribution? What Age(s) Do You Use With the Table(s)? Miscellaneous Rules for Required Minimum Distributions Are Distributions Taxable?January 2013 QCDs treated as made in 2012. Taxes due 2012 2013 Reporting. Taxes due 2012 Additional reporting requirements if you made the election to treat a January 2013 QCD as made in 2012. Taxes due 2012 One-time transfer. Taxes due 2012 Testing period rules apply. Taxes due 2012 More information. Taxes due 2012 Distributions Fully or Partly Taxable Figuring the Nontaxable and Taxable Amounts Recognizing Losses on Traditional IRA Investments Other Special IRA Distribution Situations Reporting and Withholding Requirements for Taxable Amounts What Acts Result in Penalties or Additional Taxes?Prohibited Transactions Investment in Collectibles Excess Contributions Early Distributions Excess Accumulations (Insufficient Distributions) Reporting Additional Taxes What's New for 2013 Traditional IRA contribution and deduction limit. Taxes due 2012  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. Taxes due 2012 If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. Taxes due 2012 For more information, see How Much Can Be Contributed? in this chapter. Taxes due 2012 Modified AGI limit for traditional IRA contributions increased. Taxes due 2012  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. Taxes due 2012 If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. Taxes due 2012 If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. Taxes due 2012 See How Much Can You Deduct? in this chapter. Taxes due 2012 Net Investment Income Tax. Taxes due 2012  For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 457(b) plans, and IRAs). Taxes due 2012 However, these distributions are taken into account when determining the modified adjusted gross income threshold. Taxes due 2012 Distributions from a nonqualified retirement plan are included in net investment income. Taxes due 2012 See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. Taxes due 2012 What's New for 2014 Modified AGI limit for traditional IRA contributions increased. Taxes due 2012  For 2014, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $96,000 but less than $116,000 for a married couple filing a joint return or a qualifying widow(er), More than $60,000 but less than $70,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. Taxes due 2012 If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $181,000 but less than $191,000. Taxes due 2012 If your modified AGI is $191,000 or more, you cannot take a deduction for contributions to a traditional IRA. Taxes due 2012 Introduction This chapter discusses the original IRA. Taxes due 2012 In this publication the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. Taxes due 2012 ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Taxes due 2012 The following are two advantages of a traditional IRA: You may be able to deduct some or all of your contributions to it, depending on your circumstances. Taxes due 2012 Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. Taxes due 2012 Who Can Open a Traditional IRA? You can open and make contributions to a traditional IRA if: You (or, if you file a joint return, your spouse) received taxable compensation during the year, and You were not age 70½ by the end of the year. Taxes due 2012 You can have a traditional IRA whether or not you are covered by any other retirement plan. Taxes due 2012 However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan. Taxes due 2012 See How Much Can You Deduct , later. Taxes due 2012 Both spouses have compensation. Taxes due 2012   If both you and your spouse have compensation and are under age 70½, each of you can open an IRA. Taxes due 2012 You cannot both participate in the same IRA. Taxes due 2012 If you file a joint return, only one of you needs to have compensation. Taxes due 2012 What Is Compensation? Generally, compensation is what you earn from working. Taxes due 2012 For a summary of what compensation does and does not include, see Table 1-1. Taxes due 2012 Compensation includes all of the items discussed next (even if you have more than one type). Taxes due 2012 Wages, salaries, etc. Taxes due 2012   Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. Taxes due 2012 The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Taxes due 2012 Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2. Taxes due 2012 Commissions. Taxes due 2012   An amount you receive that is a percentage of profits or sales price is compensation. Taxes due 2012 Self-employment income. Taxes due 2012   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of: The deduction for contributions made on your behalf to retirement plans, and The deduction allowed for the deductible part of your self-employment taxes. Taxes due 2012   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. Taxes due 2012 Self-employment loss. Taxes due 2012   If you have a net loss from self-employment, do not subtract the loss from your salaries or wages when figuring your total compensation. Taxes due 2012 Alimony and separate maintenance. Taxes due 2012   For IRA purposes, compensation includes any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance. Taxes due 2012 Nontaxable combat pay. Taxes due 2012   If you were a member of the U. Taxes due 2012 S. Taxes due 2012 Armed Forces, compensation includes any nontaxable combat pay you received. Taxes due 2012 This amount should be reported in box 12 of your 2013 Form W-2 with code Q. Taxes due 2012 Table 1-1. Taxes due 2012 Compensation for Purposes of an IRA Includes . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 Does not include . Taxes due 2012 . Taxes due 2012 . Taxes due 2012   earnings and profits from property. Taxes due 2012 wages, salaries, etc. Taxes due 2012     interest and dividend income. Taxes due 2012 commissions. Taxes due 2012     pension or annuity income. Taxes due 2012 self-employment income. Taxes due 2012     deferred compensation. Taxes due 2012 alimony and separate maintenance. Taxes due 2012     income from certain  partnerships. Taxes due 2012 nontaxable combat pay. Taxes due 2012     any amounts you exclude from income. Taxes due 2012     What Is Not Compensation? Compensation does not include any of the following items. Taxes due 2012 Earnings and profits from property, such as rental income, interest income, and dividend income. Taxes due 2012 Pension or annuity income. Taxes due 2012 Deferred compensation received (compensation payments postponed from a past year). Taxes due 2012 Income from a partnership for which you do not provide services that are a material income-producing factor. Taxes due 2012 Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. Taxes due 2012 Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. Taxes due 2012 When Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. Taxes due 2012 However, the time for making contributions for any year is limited. Taxes due 2012 See When Can Contributions Be Made , later. Taxes due 2012 How Can a Traditional IRA Be Opened? You can open different kinds of IRAs with a variety of organizations. Taxes due 2012 You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. Taxes due 2012 You can also open an IRA through your stockbroker. Taxes due 2012 Any IRA must meet Internal Revenue Code requirements. Taxes due 2012 The requirements for the various arrangements are discussed below. Taxes due 2012 Kinds of traditional IRAs. Taxes due 2012   Your traditional IRA can be an individual retirement account or annuity. Taxes due 2012 It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. Taxes due 2012 Individual Retirement Account An individual retirement account is a trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries. Taxes due 2012 The account is created by a written document. Taxes due 2012 The document must show that the account meets all of the following requirements. Taxes due 2012 The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian. Taxes due 2012 The trustee or custodian generally cannot accept contributions of more than the deductible amount for the year. Taxes due 2012 However, rollover contributions and employer contributions to a simplified employee pension (SEP) can be more than this amount. Taxes due 2012 Contributions, except for rollover contributions, must be in cash. Taxes due 2012 See Rollovers , later. Taxes due 2012 You must have a nonforfeitable right to the amount at all times. Taxes due 2012 Money in your account cannot be used to buy a life insurance policy. Taxes due 2012 Assets in your account cannot be combined with other property, except in a common trust fund or common investment fund. Taxes due 2012 You must start receiving distributions by April 1 of the year following the year in which you reach age 70½. Taxes due 2012 See When Must You Withdraw Assets? (Required Minimum Distributions) , later. Taxes due 2012 Individual Retirement Annuity You can open an individual retirement annuity by purchasing an annuity contract or an endowment contract from a life insurance company. Taxes due 2012 An individual retirement annuity must be issued in your name as the owner, and either you or your beneficiaries who survive you are the only ones who can receive the benefits or payments. Taxes due 2012 An individual retirement annuity must meet all the following requirements. Taxes due 2012 Your entire interest in the contract must be nonforfeitable. Taxes due 2012 The contract must provide that you cannot transfer any portion of it to any person other than the issuer. Taxes due 2012 There must be flexible premiums so that if your compensation changes, your payment can also change. Taxes due 2012 This provision applies to contracts issued after November 6, 1978. Taxes due 2012 The contract must provide that contributions cannot be more than the deductible amount for an IRA for the year, and that you must use any refunded premiums to pay for future premiums or to buy more benefits before the end of the calendar year after the year in which you receive the refund. Taxes due 2012 Distributions must begin by April 1 of the year following the year in which you reach age 70½. Taxes due 2012 See When Must You Withdraw Assets? (Required Minimum Distributions) , later. Taxes due 2012 Individual Retirement Bonds The sale of individual retirement bonds issued by the federal government was suspended after April 30, 1982. Taxes due 2012 The bonds have the following features. Taxes due 2012 They stop earning interest when you reach age 70½. Taxes due 2012 If you die, interest will stop 5 years after your death, or on the date you would have reached age 70½, whichever is earlier. Taxes due 2012 You cannot transfer the bonds. Taxes due 2012 If you cash (redeem) the bonds before the year in which you reach age 59½, you may be subject to a 10% additional tax. Taxes due 2012 See Age 59½ Rule under Early Distributions, later. Taxes due 2012 You can roll over redemption proceeds into IRAs. Taxes due 2012 Simplified Employee Pension (SEP) A simplified employee pension (SEP) is a written arrangement that allows your employer to make deductible contributions to a traditional IRA (a SEP IRA) set up for you to receive such contributions. Taxes due 2012 Generally, distributions from SEP IRAs are subject to the withdrawal and tax rules that apply to traditional IRAs. Taxes due 2012 See Publication 560 for more information about SEPs. Taxes due 2012 Employer and Employee Association Trust Accounts Your employer or your labor union or other employee association can set up a trust to provide individual retirement accounts for employees or members. Taxes due 2012 The requirements for individual retirement accounts apply to these traditional IRAs. Taxes due 2012 Required Disclosures The trustee or issuer (sometimes called the sponsor) of your traditional IRA generally must give you a disclosure statement at least 7 days before you open your IRA. Taxes due 2012 However, the sponsor does not have to give you the statement until the date you open (or purchase, if earlier) your IRA, provided you are given at least 7 days from that date to revoke the IRA. Taxes due 2012 The disclosure statement must explain certain items in plain language. Taxes due 2012 For example, the statement should explain when and how you can revoke the IRA, and include the name, address, and telephone number of the person to receive the notice of cancellation. Taxes due 2012 This explanation must appear at the beginning of the disclosure statement. Taxes due 2012 If you revoke your IRA within the revocation period, the sponsor must return to you the entire amount you paid. Taxes due 2012 The sponsor must report on the appropriate IRS forms both your contribution to the IRA (unless it was made by a trustee-to-trustee transfer) and the amount returned to you. Taxes due 2012 These requirements apply to all sponsors. Taxes due 2012 How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. Taxes due 2012 These limits and rules are explained below. Taxes due 2012 Community property laws. Taxes due 2012   Except as discussed later under Kay Bailey Hutchison Spousal IRA Limit , each spouse figures his or her limit separately, using his or her own compensation. Taxes due 2012 This is the rule even in states with community property laws. Taxes due 2012 Brokers' commissions. Taxes due 2012   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. Taxes due 2012 For information about whether you can deduct brokers' commissions, see Brokers' commissions , later, under How Much Can You Deduct. Taxes due 2012 Trustees' fees. Taxes due 2012   Trustees' administrative fees are not subject to the contribution limit. Taxes due 2012 For information about whether you can deduct trustees' fees, see Trustees' fees , later, under How Much Can You Deduct. Taxes due 2012 Qualified reservist repayments. Taxes due 2012   If you were a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions (defined later under Early Distributions) you received. Taxes due 2012 You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. Taxes due 2012 To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or a similar arrangement. Taxes due 2012 Limit. Taxes due 2012   Your qualified reservist repayments cannot be more than your qualified reservist distributions, explained under Early Distributions , later. Taxes due 2012 When repayment contributions can be made. Taxes due 2012   You cannot make these repayment contributions later than the date that is 2 years after your active duty period ends. Taxes due 2012 No deduction. Taxes due 2012   You cannot deduct qualified reservist repayments. Taxes due 2012 Reserve component. Taxes due 2012   The term “reserve component” means the: Army National Guard of the United States, Army Reserve, Naval Reserve, Marine Corps Reserve, Air National Guard of the United States, Air Force Reserve, Coast Guard Reserve, or Reserve Corps of the Public Health Service. Taxes due 2012 Figuring your IRA deduction. Taxes due 2012   The repayment of qualified reservist distributions does not affect the amount you can deduct as an IRA contribution. Taxes due 2012 Reporting the repayment. Taxes due 2012   If you repay a qualified reservist distribution, include the amount of the repayment with nondeductible contributions on line 1 of Form 8606. Taxes due 2012 Example. Taxes due 2012   In 2013, your IRA contribution limit is $5,500. Taxes due 2012 However, because of your filing status and AGI, the limit on the amount you can deduct is $3,500. Taxes due 2012 You can make a nondeductible contribution of $2,000 ($5,500 - $3,500). Taxes due 2012 In an earlier year you received a $3,000 qualified reservist distribution, which you would like to repay this year. Taxes due 2012   For 2013, you can contribute a total of $8,500 to your IRA. Taxes due 2012 This is made up of the maximum deductible contribution of $3,500; a nondeductible contribution of $2,000; and a $3,000 qualified reservist repayment. Taxes due 2012 You contribute the maximum allowable for the year. Taxes due 2012 Since you are making a nondeductible contribution ($2,000) and a qualified reservist repayment ($3,000), you must file Form 8606 with your return and include $5,000 ($2,000 + $3,000) on line 1 of Form 8606. Taxes due 2012 The qualified reservist repayment is not deductible. Taxes due 2012 Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. Taxes due 2012 See chapter 2 for information about Roth IRAs. Taxes due 2012 General Limit For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation (defined earlier) for the year. Taxes due 2012 Note. Taxes due 2012 This limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). Taxes due 2012 This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. Taxes due 2012 (See Nondeductible Contributions , later. Taxes due 2012 ) Qualified reservist repayments do not affect this limit. Taxes due 2012 Examples. Taxes due 2012 George, who is 34 years old and single, earns $24,000 in 2013. Taxes due 2012 His IRA contributions for 2013 are limited to $5,500. Taxes due 2012 Danny, an unmarried college student working part time, earns $3,500 in 2013. Taxes due 2012 His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. Taxes due 2012 More than one IRA. Taxes due 2012   If you have more than one IRA, the limit applies to the total contributions made on your behalf to all your traditional IRAs for the year. Taxes due 2012 Annuity or endowment contracts. Taxes due 2012   If you invest in an annuity or endowment contract under an individual retirement annuity, no more than $5,500 ($6,500 if you are age 50 or older) can be contributed toward its cost for the tax year, including the cost of life insurance coverage. Taxes due 2012 If more than this amount is contributed, the annuity or endowment contract is disqualified. Taxes due 2012 Kay Bailey Hutchison Spousal IRA Limit For 2013, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following two amounts: $5,500 ($6,500 if you are age 50 or older), or The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. Taxes due 2012 Your spouse's IRA contribution for the year to a traditional IRA. Taxes due 2012 Any contributions for the year to a Roth IRA on behalf of your spouse. Taxes due 2012 This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $11,000 ($12,000 if only one of you is age 50 or older or $13,000 if both of you are age 50 or older). Taxes due 2012 Note. Taxes due 2012 This traditional IRA limit is reduced by any contributions to a section 501(c)(18) plan (generally, a pension plan created before June 25, 1959, that is funded entirely by employee contributions). Taxes due 2012 Example. Taxes due 2012 Kristin, a full-time student with no taxable compensation, marries Carl during the year. Taxes due 2012 Neither of them was age 50 by the end of 2013. Taxes due 2012 For the year, Carl has taxable compensation of $30,000. Taxes due 2012 He plans to contribute (and deduct) $5,500 to a traditional IRA. Taxes due 2012 If he and Kristin file a joint return, each can contribute $5,500 to a traditional IRA. Taxes due 2012 This is because Kristin, who has no compensation, can add Carl's compensation, reduced by the amount of his IRA contribution ($30,000 − $5,500 = $24,500), to her own compensation (-0-) to figure her maximum contribution to a traditional IRA. Taxes due 2012 In her case, $5,500 is her contribution limit, because $5,500 is less than $24,500 (her compensation for purposes of figuring her contribution limit). Taxes due 2012 Filing Status Generally, except as discussed earlier under Kay Bailey Hutchison Spousal IRA Limit , your filing status has no effect on the amount of allowable contributions to your traditional IRA. Taxes due 2012 However, if during the year either you or your spouse was covered by a retirement plan at work, your deduction may be reduced or eliminated, depending on your filing status and income. Taxes due 2012 See How Much Can You Deduct , later. Taxes due 2012 Example. Taxes due 2012 Tom and Darcy are married and both are 53. Taxes due 2012 They both work and each has a traditional IRA. Taxes due 2012 Tom earned $3,800 and Darcy earned $48,000 in 2013. Taxes due 2012 Because of the Kay Bailey Hutchison Spousal IRA limit rule, even though Tom earned less than $6,500, they can contribute up to $6,500 to his IRA for 2013 if they file a joint return. Taxes due 2012 They can contribute up to $6,500 to Darcy's IRA. Taxes due 2012 If they file separate returns, the amount that can be contributed to Tom's IRA is limited by his earned income, $3,800. Taxes due 2012 Less Than Maximum Contributions If contributions to your traditional IRA for a year were less than the limit, you cannot contribute more after the due date of your return for that year to make up the difference. Taxes due 2012 Example. Taxes due 2012 Rafael, who is 40, earns $30,000 in 2013. Taxes due 2012 Although he can contribute up to $5,500 for 2013, he contributes only $3,000. Taxes due 2012 After April 15, 2014, Rafael cannot make up the difference between his actual contributions for 2013 ($3,000) and his 2013 limit ($5,500). Taxes due 2012 He cannot contribute $2,500 more than the limit for any later year. Taxes due 2012 More Than Maximum Contributions If contributions to your IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year. Taxes due 2012 However, a penalty or additional tax may apply. Taxes due 2012 See Excess Contributions , later, under What Acts Result in Penalties or Additional Taxes. Taxes due 2012 When Can Contributions Be Made? As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). Taxes due 2012 Contributions must be in the form of money (cash, check, or money order). Taxes due 2012 Property cannot be contributed. Taxes due 2012 Although property cannot be contributed, your IRA may invest in certain property. Taxes due 2012 For example, your IRA may purchase shares of stock. Taxes due 2012 For other restrictions on the use of funds in your IRA, see Prohibited Transactions , later in this chapter. Taxes due 2012 You may be able to transfer or roll over certain property from one retirement plan to another. Taxes due 2012 See the discussion of rollovers and other transfers later in this chapter under Can You Move Retirement Plan Assets . Taxes due 2012 You can make a contribution to your IRA by having your income tax refund (or a portion of your refund), if any, paid directly to your traditional IRA, Roth IRA, or SEP IRA. Taxes due 2012 For details, see the instructions for your income tax return or Form 8888, Allocation of Refund (Including Savings Bond Purchases). Taxes due 2012 Contributions can be made to your traditional IRA for each year that you receive compensation and have not reached age 70½. Taxes due 2012 For any year in which you do not work, contributions cannot be made to your IRA unless you receive alimony, nontaxable combat pay, military differential pay, or file a joint return with a spouse who has compensation. Taxes due 2012 See Who Can Open a Traditional IRA , earlier. Taxes due 2012 Even if contributions cannot be made for the current year, the amounts contributed for years in which you did qualify can remain in your IRA. Taxes due 2012 Contributions can resume for any years that you qualify. Taxes due 2012 Contributions must be made by due date. Taxes due 2012   Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. Taxes due 2012 For most people, this means that contributions for 2013 must be made by April 15, 2014, and contributions for 2014 must be made by April 15, 2015. Taxes due 2012 Age 70½ rule. Taxes due 2012   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. Taxes due 2012   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. Taxes due 2012 If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. Taxes due 2012 Designating year for which contribution is made. Taxes due 2012   If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. Taxes due 2012 If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). Taxes due 2012 Filing before a contribution is made. Taxes due 2012    You can file your return claiming a traditional IRA contribution before the contribution is actually made. Taxes due 2012 Generally, the contribution must be made by the due date of your return, not including extensions. Taxes due 2012 Contributions not required. Taxes due 2012   You do not have to contribute to your traditional IRA for every tax year, even if you can. Taxes due 2012 How Much Can You Deduct? Generally, you can deduct the lesser of: The contributions to your traditional IRA for the year, or The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if applicable) explained earlier under How Much Can Be Contributed . Taxes due 2012 However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. Taxes due 2012 See Limit if Covered by Employer Plan , later. Taxes due 2012 You may be able to claim a credit for contributions to your traditional IRA. Taxes due 2012 For more information, see chapter 4. Taxes due 2012 Trustees' fees. Taxes due 2012   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. Taxes due 2012 However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). Taxes due 2012 For information about miscellaneous itemized deductions, see Publication 529, Miscellaneous Deductions. Taxes due 2012 Brokers' commissions. Taxes due 2012   These commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Taxes due 2012 Full deduction. Taxes due 2012   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more of your traditional IRAs of up to the lesser of: $5,500 ($6,500 if you are age 50 or older), or 100% of your compensation. Taxes due 2012   This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Taxes due 2012 Kay Bailey Hutchison Spousal IRA. Taxes due 2012   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of: $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older), or The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. Taxes due 2012 The IRA deduction for the year of the spouse with the greater compensation. Taxes due 2012 Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. Taxes due 2012 Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. Taxes due 2012   This limit is reduced by any contributions to a section 501(c)(18) plan on behalf of the spouse with the lesser compensation. Taxes due 2012 Note. Taxes due 2012 If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. Taxes due 2012 After a divorce or legal separation, you can deduct only the contributions to your own IRA. Taxes due 2012 Your deductions are subject to the rules for single individuals. Taxes due 2012 Covered by an employer retirement plan. Taxes due 2012   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. Taxes due 2012 This is discussed later under Limit if Covered by Employer Plan . Taxes due 2012 Limits on the amount you can deduct do not affect the amount that can be contributed. Taxes due 2012 Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. Taxes due 2012 The “Retirement Plan” box should be checked if you were covered. Taxes due 2012 Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered , later. Taxes due 2012 If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. Taxes due 2012 Federal judges. Taxes due 2012   For purposes of the IRA deduction, federal judges are covered by an employer plan. Taxes due 2012 For Which Year(s) Are You Covered? Special rules apply to determine the tax years for which you are covered by an employer plan. Taxes due 2012 These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Taxes due 2012 Tax year. Taxes due 2012   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. Taxes due 2012 For almost all people, the tax year is the calendar year. Taxes due 2012 Defined contribution plan. Taxes due 2012   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. Taxes due 2012 However, also see Situations in Which You Are Not Covered , later. Taxes due 2012   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Taxes due 2012 In a defined contribution plan, the amount to be contributed to each participant's account is spelled out in the plan. Taxes due 2012 The level of benefits actually provided to a participant depends on the total amount contributed to that participant's account and any earnings and losses on those contributions. Taxes due 2012 Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Taxes due 2012 Example. Taxes due 2012 Company A has a money purchase pension plan. Taxes due 2012 Its plan year is from July 1 to June 30. Taxes due 2012 The plan provides that contributions must be allocated as of June 30. Taxes due 2012 Bob, an employee, leaves Company A on December 31, 2012. Taxes due 2012 The contribution for the plan year ending on June 30, 2013, is made February 15, 2014. Taxes due 2012 Because an amount is contributed to Bob's account for the plan year, Bob is covered by the plan for his 2013 tax year. Taxes due 2012   A special rule applies to certain plans in which it is not possible to determine if an amount will be contributed to your account for a given plan year. Taxes due 2012 If, for a plan year, no amounts have been allocated to your account that are attributable to employer contributions, employee contributions, or forfeitures, by the last day of the plan year, and contributions are discretionary for the plan year, you are not covered for the tax year in which the plan year ends. Taxes due 2012 If, after the plan year ends, the employer makes a contribution for that plan year, you are covered for the tax year in which the contribution is made. Taxes due 2012 Example. Taxes due 2012 Mickey was covered by a profit-sharing plan and left the company on December 31, 2012. Taxes due 2012 The plan year runs from July 1 to June 30. Taxes due 2012 Under the terms of the plan, employer contributions do not have to be made, but if they are made, they are contributed to the plan before the due date for filing the company's tax return. Taxes due 2012 Such contributions are allocated as of the last day of the plan year, and allocations are made to the accounts of individuals who have any service during the plan year. Taxes due 2012 As of June 30, 2013, no contributions were made that were allocated to the June 30, 2013, plan year, and no forfeitures had been allocated within the plan year. Taxes due 2012 In addition, as of that date, the company was not obligated to make a contribution for such plan year and it was impossible to determine whether or not a contribution would be made for the plan year. Taxes due 2012 On December 31, 2013, the company decided to contribute to the plan for the plan year ending June 30, 2013. Taxes due 2012 That contribution was made on February 15, 2014. Taxes due 2012 Mickey is an active participant in the plan for his 2014 tax year but not for his 2013 tax year. Taxes due 2012 No vested interest. Taxes due 2012   If an amount is allocated to your account for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the account. Taxes due 2012 Defined benefit plan. Taxes due 2012   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. Taxes due 2012 This rule applies even if you: Declined to participate in the plan, Did not make a required contribution, or Did not perform the minimum service required to accrue a benefit for the year. Taxes due 2012   A defined benefit plan is any plan that is not a defined contribution plan. Taxes due 2012 In a defined benefit plan, the level of benefits to be provided to each participant is spelled out in the plan. Taxes due 2012 The plan administrator figures the amount needed to provide those benefits and those amounts are contributed to the plan. Taxes due 2012 Defined benefit plans include pension plans and annuity plans. Taxes due 2012 Example. Taxes due 2012 Nick, an employee of Company B, is eligible to participate in Company B's defined benefit plan, which has a July 1 to June 30 plan year. Taxes due 2012 Nick leaves Company B on December 31, 2012. Taxes due 2012 Because Nick is eligible to participate in the plan for its year ending June 30, 2013, he is covered by the plan for his 2013 tax year. Taxes due 2012 No vested interest. Taxes due 2012   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. Taxes due 2012 Situations in Which You Are Not Covered Unless you are covered by another employer plan, you are not covered by an employer plan if you are in one of the situations described below. Taxes due 2012 Social security or railroad retirement. Taxes due 2012   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. Taxes due 2012 Benefits from previous employer's plan. Taxes due 2012   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. Taxes due 2012 Reservists. Taxes due 2012   If the only reason you participate in a plan is because you are a member of a reserve unit of the Armed Forces, you may not be covered by the plan. Taxes due 2012 You are not covered by the plan if both of the following conditions are met. Taxes due 2012 The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Taxes due 2012 You did not serve more than 90 days on active duty during the year (not counting duty for training). Taxes due 2012 Volunteer firefighters. Taxes due 2012   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. Taxes due 2012 You are not covered by the plan if both of the following conditions are met. Taxes due 2012 The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Taxes due 2012 Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. Taxes due 2012 Limit if Covered by Employer Plan As discussed earlier, the deduction you can take for contributions made to your traditional IRA depends on whether you or your spouse was covered for any part of the year by an employer retirement plan. Taxes due 2012 Your deduction is also affected by how much income you had and by your filing status. Taxes due 2012 Your deduction may also be affected by social security benefits you received. Taxes due 2012 Reduced or no deduction. Taxes due 2012   If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. Taxes due 2012   Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. Taxes due 2012 These amounts vary depending on your filing status. Taxes due 2012   To determine if your deduction is subject to the phaseout, you must determine your modified adjusted gross income (AGI) and your filing status, as explained later under Deduction Phaseout . Taxes due 2012 Once you have determined your modified AGI and your filing status, you can use Table 1-2 or Table 1-3 to determine if the phaseout applies. Taxes due 2012 Social Security Recipients Instead of using Table 1-2 or Table 1-3 and Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, later, complete the worksheets in Appendix B of this publication if, for the year, all of the following apply. Taxes due 2012 You received social security benefits. Taxes due 2012 You received taxable compensation. Taxes due 2012 Contributions were made to your traditional IRA. Taxes due 2012 You or your spouse was covered by an employer retirement plan. Taxes due 2012 Use the worksheets in Appendix B to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. Taxes due 2012 Appendix B includes an example with filled-in worksheets to assist you. Taxes due 2012 Table 1-2. Taxes due 2012 Effect of Modified AGI1 on Deduction if You Are Covered by a Retirement Plan at Work If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Taxes due 2012 IF your filing status is . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 AND your modified adjusted gross income (modified AGI) is . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 THEN you can take . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 single or head of household $59,000 or less a full deduction. Taxes due 2012 more than $59,000 but less than $69,000 a partial deduction. Taxes due 2012 $69,000 or more no deduction. Taxes due 2012 married filing jointly or  qualifying widow(er) $95,000 or less a full deduction. Taxes due 2012 more than $95,000 but less than $115,000 a partial deduction. Taxes due 2012 $115,000 or more no deduction. Taxes due 2012 married filing separately2 less than $10,000 a partial deduction. Taxes due 2012 $10,000 or more no deduction. Taxes due 2012 1 Modified AGI (adjusted gross income). Taxes due 2012 See Modified adjusted gross income (AGI) , later. Taxes due 2012  2 If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” filing status). Taxes due 2012 Table 1-3. Taxes due 2012 Effect of Modified AGI1 on Deduction if You Are NOT Covered by a Retirement Plan at Work If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Taxes due 2012 IF your filing status is . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 AND your modified adjusted gross income (modified AGI) is . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 THEN you can take . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 single, head of household, or qualifying widow(er) any amount a full deduction. Taxes due 2012 married filing jointly or separately with a spouse who is not covered by a plan at work any amount a full deduction. Taxes due 2012 married filing jointly with a spouse who is covered by a plan at work $178,000 or less a full deduction. Taxes due 2012 more than $178,000 but less than $188,000 a partial deduction. Taxes due 2012 $188,000 or more no deduction. Taxes due 2012 married filing separately with a spouse who is covered by a plan at work2 less than $10,000 a partial deduction. Taxes due 2012 $10,000 or more no deduction. Taxes due 2012 1 Modified AGI (adjusted gross income). Taxes due 2012 See Modified adjusted gross income (AGI) , later. Taxes due 2012  2 You are entitled to the full deduction if you did not live with your spouse at any time during the year. Taxes due 2012 For 2014, if you are not covered by a retirement plan at work and you are married filing jointly with a spouse who is covered by a plan at work, your deduction is phased out if your modified AGI is more than $181,000 but less than $191,000. Taxes due 2012 If your AGI is $191,000 or more, you cannot take a deduction for a contribution to a traditional IRA. Taxes due 2012 Deduction Phaseout The amount of any reduction in the limit on your IRA deduction (phaseout) depends on whether you or your spouse was covered by an employer retirement plan. Taxes due 2012 Covered by a retirement plan. Taxes due 2012   If you are covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI, as shown in Table 1-2. Taxes due 2012 For 2014, if you are covered by a retirement plan at work, your IRA deduction will not be reduced (phased out) unless your modified AGI is: More than $60,000 but less than $70,000 for a single individual (or head of household), More than $96,000 but less than $116,000 for a married couple filing a joint return (or a qualifying widow(er)), or Less than $10,000 for a married individual filing a separate return. Taxes due 2012 If your spouse is covered. Taxes due 2012   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 1-3. Taxes due 2012 Filing status. Taxes due 2012   Your filing status depends primarily on your marital status. Taxes due 2012 For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. Taxes due 2012 If you need more information on filing status, see Publication 501, Exemptions, Standard Deduction, and Filing Information. Taxes due 2012 Lived apart from spouse. Taxes due 2012   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. Taxes due 2012 Modified adjusted gross income (AGI). Taxes due 2012   You can use Worksheet 1-1 to figure your modified AGI. Taxes due 2012 If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Both contributions for 2013 and distributions in 2013 , later. Taxes due 2012    Do not assume that your modified AGI is the same as your compensation. Taxes due 2012 Your modified AGI may include income in addition to your compensation (discussed earlier) such as interest, dividends, and income from IRA distributions. Taxes due 2012 Form 1040. Taxes due 2012   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Taxes due 2012 IRA deduction. Taxes due 2012 Student loan interest deduction. Taxes due 2012 Tuition and fees deduction. Taxes due 2012 Domestic production activities deduction. Taxes due 2012 Foreign earned income exclusion. Taxes due 2012 Foreign housing exclusion or deduction. Taxes due 2012 Exclusion of qualified savings bond interest shown on Form 8815. Taxes due 2012 Exclusion of employer-provided adoption benefits shown on Form 8839. Taxes due 2012 This is your modified AGI. Taxes due 2012 Form 1040A. Taxes due 2012   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Taxes due 2012 IRA deduction. Taxes due 2012 Student loan interest deduction. Taxes due 2012 Tuition and fees deduction. Taxes due 2012 Exclusion of qualified savings bond interest shown on Form 8815. Taxes due 2012 This is your modified AGI. Taxes due 2012 Form 1040NR. Taxes due 2012   If you file Form 1040NR, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Taxes due 2012 IRA deduction. Taxes due 2012 Student loan interest deduction. Taxes due 2012 Domestic production activities deduction. Taxes due 2012 Exclusion of qualified savings bond interest shown on Form 8815. Taxes due 2012 Exclusion of employer-provided adoption benefits shown on Form 8839. Taxes due 2012 This is your modified AGI. Taxes due 2012 Income from IRA distributions. Taxes due 2012   If you received distributions in 2013 from one or more traditional IRAs and your traditional IRAs include only deductible contributions, the distributions are fully taxable and are included in your modified AGI. Taxes due 2012 Both contributions for 2013 and distributions in 2013. Taxes due 2012   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. Taxes due 2012 You received distributions in 2013 from one or more traditional IRAs, You made contributions to a traditional IRA for 2013, and Some of those contributions may be nondeductible contributions. Taxes due 2012 (See Nondeductible Contributions and Worksheet 1-2, later. Taxes due 2012 ) If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. Taxes due 2012 To do this, you can use Worksheet 1-5, later. Taxes due 2012   If at least one of the above does not apply, figure your modified AGI using Worksheet 1-1, later. Taxes due 2012 How To Figure Your Reduced IRA Deduction If you or your spouse is covered by an employer retirement plan and you did not receive any social security benefits, you can figure your reduced IRA deduction by using Worksheet 1-2. Taxes due 2012 Figuring Your Reduced IRA Deduction for 2013. Taxes due 2012 The Instructions for Form 1040, Form 1040A, and Form 1040NR include similar worksheets that you can use instead of the worksheet in this publication. Taxes due 2012 If you or your spouse is covered by an employer retirement plan, and you received any social security benefits, see Social Security Recipients , earlier. Taxes due 2012 Note. Taxes due 2012 If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Taxes due 2012 Worksheet 1-1. Taxes due 2012 Figuring Your Modified AGI Use this worksheet to figure your modified AGI for traditional IRA purposes. Taxes due 2012 1. Taxes due 2012 Enter your adjusted gross income (AGI) from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37, figured without taking into account the amount from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32 1. Taxes due 2012   2. Taxes due 2012 Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 2. Taxes due 2012   3. Taxes due 2012 Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. Taxes due 2012   4. Taxes due 2012 Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 4. Taxes due 2012   5. Taxes due 2012 Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. Taxes due 2012   6. Taxes due 2012 Enter any foreign housing deduction from Form 2555, line 50 6. Taxes due 2012   7. Taxes due 2012 Enter any excludable savings bond interest from Form 8815, line 14 7. Taxes due 2012   8. Taxes due 2012 Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. Taxes due 2012   9. Taxes due 2012 Add lines 1 through 8. Taxes due 2012 This is your Modified AGI for traditional IRA purposes 9. Taxes due 2012   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. Taxes due 2012 If you file Form 1040A, enter your IRA deduction on line 17 of that form. Taxes due 2012 If you file Form 1040NR, enter your IRA deduction on line 32 of that form. Taxes due 2012 You cannot deduct IRA contributions on Form 1040EZ or Form 1040NR-EZ. Taxes due 2012 Self-employed. Taxes due 2012   If you are self-employed (a sole proprietor or partner) and have a SIMPLE IRA, enter your deduction for allowable plan contributions on Form 1040, line 28. Taxes due 2012 If you file Form 1040NR, enter your deduction on line 28 of that form. Taxes due 2012 Nondeductible Contributions Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA of up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. Taxes due 2012 The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Taxes due 2012 Example. Taxes due 2012 Tony is 29 years old and single. Taxes due 2012 In 2013, he was covered by a retirement plan at work. Taxes due 2012 His salary is $62,000. Taxes due 2012 His modified AGI is $70,000. Taxes due 2012 Tony makes a $5,500 IRA contribution for 2013. Taxes due 2012 Because he was covered by a retirement plan and his modified AGI is above $69,000, he cannot deduct his $5,500 IRA contribution. Taxes due 2012 He must designate this contribution as a nondeductible contribution by reporting it on Form 8606. Taxes due 2012 Repayment of reservist distributions. Taxes due 2012   Nondeductible contributions may include repayments of qualified reservist distributions. Taxes due 2012 For more information, see Qualified reservist repayments under How Much Can Be Contributed, earlier. Taxes due 2012 Form 8606. Taxes due 2012   To designate contributions as nondeductible, you must file Form 8606. Taxes due 2012 (See the filled-in Forms 8606 in this chapter. Taxes due 2012 )   You do not have to designate a contribution as nondeductible until you file your tax return. Taxes due 2012 When you file, you can even designate otherwise deductible contributions as nondeductible contributions. Taxes due 2012   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. Taxes due 2012    A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. Taxes due 2012 In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. Taxes due 2012 See Form 8606 under Distributions Fully or Partly Taxable, later. Taxes due 2012 Failure to report nondeductible contributions. Taxes due 2012   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated like deductible contributions when withdrawn. Taxes due 2012 All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Taxes due 2012 Penalty for overstatement. Taxes due 2012   If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. Taxes due 2012 Penalty for failure to file Form 8606. Taxes due 2012   You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause. Taxes due 2012 Tax on earnings on nondeductible contributions. Taxes due 2012   As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. Taxes due 2012 Cost basis. Taxes due 2012   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Taxes due 2012 Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Taxes due 2012    Commonly, distributions from your traditional IRAs will include both taxable and nontaxable (cost basis) amounts. Taxes due 2012 See Are Distributions Taxable, later, for more information. Taxes due 2012 Recordkeeping. Taxes due 2012 There is a recordkeeping worksheet, Appendix A. Taxes due 2012 Summary Record of Traditional IRA(s) for 2013 , that you can use to keep a record of deductible and nondeductible IRA contributions. Taxes due 2012 Examples — Worksheet for Reduced IRA Deduction for 2013 The following examples illustrate the use of Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013. Taxes due 2012 Example 1. Taxes due 2012 For 2013, Tom and Betty file a joint return on Form 1040. Taxes due 2012 They are both 39 years old. Taxes due 2012 They are both employed and Tom is covered by his employer's retirement plan. Taxes due 2012 Tom's salary is $59,000 and Betty's is $32,555. Taxes due 2012 They each have a traditional IRA and their combined modified AGI, which includes $5,000 interest and dividend income, is $96,555. Taxes due 2012 Because their modified AGI is between $95,000 and $115,000 and Tom is covered by an employer plan, Tom is subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan . Taxes due 2012 For 2013, Tom contributed $5,500 to his IRA and Betty contributed $5,500 to hers. Taxes due 2012 Even though they file a joint return, they must use separate worksheets to figure the IRA deduction for each of them. Taxes due 2012 Tom can take a deduction of only $5,080. Taxes due 2012 He can choose to treat the $5,080 as either deductible or nondeductible contributions. Taxes due 2012 He can either leave the $420 ($5,500 − $5,080) of nondeductible contributions in his IRA or withdraw them by April 15, 2014. Taxes due 2012 He decides to treat the $5,080 as deductible contributions and leave the $420 of nondeductible contributions in his IRA. Taxes due 2012 Using Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, Tom figures his deductible and nondeductible amounts as shown on Worksheet 1-2. Taxes due 2012 Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated. Taxes due 2012 Betty figures her IRA deduction as follows. Taxes due 2012 Betty can treat all or part of her contributions as either deductible or nondeductible. Taxes due 2012 This is because her $5,500 contribution for 2013 is not subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan . Taxes due 2012 She does not need to use Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, because their modified AGI is not within the phaseout range that applies. Taxes due 2012 Betty decides to treat her $5,500 IRA contributions as deductible. Taxes due 2012 The IRA deductions of $5,080 and $5,500 on the joint return for Tom and Betty total $10,580. Taxes due 2012 Example 2. Taxes due 2012 For 2013, Ed and Sue file a joint return on Form 1040. Taxes due 2012 They are both 39 years old. Taxes due 2012 Ed is covered by his employer's retirement plan. Taxes due 2012 Ed's salary is $45,000. Taxes due 2012 Sue had no compensation for the year and did not contribute to an IRA. Taxes due 2012 Sue is not covered by an employer plan. Taxes due 2012 Ed contributed $5,500 to his traditional IRA and $5,500 to a traditional IRA for Sue (a Kay Bailey Hutchison Spousal IRA). Taxes due 2012 Their combined modified AGI, which includes $2,000 interest and dividend income and a large capital gain from the sale of stock, is $180,555. Taxes due 2012 Because the combined modified AGI is $115,000 or more, Ed cannot deduct any of the contribution to his traditional IRA. Taxes due 2012 He can either leave the $5,500 of nondeductible contributions in his IRA or withdraw them by April 15, 2014. Taxes due 2012 Sue figures her IRA deduction as shown on Worksheet 1-2. Taxes due 2012 Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated. Taxes due 2012 Worksheet 1-2. Taxes due 2012 Figuring Your Reduced IRA Deduction for 2013 (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. Taxes due 2012 ) Note. Taxes due 2012 If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Taxes due 2012 IF you . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 AND your  filing status is . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 AND your modified AGI is over . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 THEN enter on  line 1 below . Taxes due 2012 . Taxes due 2012 . Taxes due 2012       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. Taxes due 2012 Enter applicable amount from table above 1. Taxes due 2012   2. Taxes due 2012 Enter your modified AGI (that of both spouses, if married filing jointly) 2. Taxes due 2012     Note. Taxes due 2012 If line 2 is equal to or more than the amount on line 1, stop here. Taxes due 2012  Your IRA contributions are not deductible. Taxes due 2012 See Nondeductible Contributions , earlier. Taxes due 2012     3. Taxes due 2012 Subtract line 2 from line 1. Taxes due 2012 If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. Taxes due 2012 You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. Taxes due 2012   4. Taxes due 2012 Multiply line 3 by the percentage below that applies to you. Taxes due 2012 If the result is not a multiple of $10, round it to the next highest multiple of $10. Taxes due 2012 (For example, $611. Taxes due 2012 40 is rounded to $620. Taxes due 2012 ) However, if the result is less than $200, enter $200. Taxes due 2012         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Taxes due 2012 5% (. Taxes due 2012 275) (by 32. Taxes due 2012 5% (. Taxes due 2012 325) if you are age 50 or older). Taxes due 2012 All others, multiply line 3 by 55% (. Taxes due 2012 55) (by 65% (. Taxes due 2012 65) if you are age 50 or older). Taxes due 2012 4. Taxes due 2012   5. Taxes due 2012 Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). Taxes due 2012 If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. Taxes due 2012 If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Taxes due 2012   6. Taxes due 2012 Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). Taxes due 2012 If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Taxes due 2012 6. Taxes due 2012   7. Taxes due 2012 IRA deduction. Taxes due 2012 Compare lines 4, 5, and 6. Taxes due 2012 Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. Taxes due 2012 If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Taxes due 2012   8. Taxes due 2012 Nondeductible contribution. Taxes due 2012 Subtract line 7 from line 5 or 6, whichever is smaller. Taxes due 2012  Enter the result here and on line 1 of your Form 8606 8. Taxes due 2012   Worksheet 1-2. Taxes due 2012 Figuring Your Reduced IRA Deduction for 2013—Example 1 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. Taxes due 2012 ) Note. Taxes due 2012 If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Taxes due 2012 IF you . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 AND your  filing status is . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 AND your modified AGI is over . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 THEN enter on  line 1 below . Taxes due 2012 . Taxes due 2012 . Taxes due 2012       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. Taxes due 2012 Enter applicable amount from table above 1. Taxes due 2012 115,000 2. Taxes due 2012 Enter your modified AGI (that of both spouses, if married filing jointly) 2. Taxes due 2012 96,555   Note. Taxes due 2012 If line 2 is equal to or more than the amount on line 1, stop here. Taxes due 2012  Your IRA contributions are not deductible. Taxes due 2012 See Nondeductible Contributions , earlier. Taxes due 2012     3. Taxes due 2012 Subtract line 2 from line 1. Taxes due 2012 If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. Taxes due 2012 You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. Taxes due 2012 18,445 4. Taxes due 2012 Multiply line 3 by the percentage below that applies to you. Taxes due 2012 If the result is not a multiple of $10, round it to the next highest multiple of $10. Taxes due 2012 (For example, $611. Taxes due 2012 40 is rounded to $620. Taxes due 2012 ) However, if the result is less than $200, enter $200. Taxes due 2012         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Taxes due 2012 5% (. Taxes due 2012 275) (by 32. Taxes due 2012 5% (. Taxes due 2012 325) if you are age 50 or older). Taxes due 2012 All others, multiply line 3 by 55% (. Taxes due 2012 55) (by 65% (. Taxes due 2012 65) if you are age 50 or older). Taxes due 2012 4. Taxes due 2012 5,080 5. Taxes due 2012 Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). Taxes due 2012 If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. Taxes due 2012 If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Taxes due 2012 59,000 6. Taxes due 2012 Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). Taxes due 2012 If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Taxes due 2012 6. Taxes due 2012 5,500 7. Taxes due 2012 IRA deduction. Taxes due 2012 Compare lines 4, 5, and 6. Taxes due 2012 Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. Taxes due 2012 If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Taxes due 2012 5,080 8. Taxes due 2012 Nondeductible contribution. Taxes due 2012 Subtract line 7 from line 5 or 6, whichever is smaller. Taxes due 2012  Enter the result here and on line 1 of your Form 8606 8. Taxes due 2012 420 Worksheet 1-2. Taxes due 2012 Figuring Your Reduced IRA Deduction for 2013—Example 2 Illustrated (Use only if you or your spouse is covered by an employer plan and your modified AGI falls between the two amounts shown below for your coverage situation and filing status. Taxes due 2012 ) Note. Taxes due 2012 If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately. Taxes due 2012 IF you . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 AND your  filing status is . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 AND your modified AGI is over . Taxes due 2012 . Taxes due 2012 . Taxes due 2012 THEN enter on  line 1 below . Taxes due 2012 . Taxes due 2012 . Taxes due 2012       are covered by an employer plan single or head of household $59,000 $69,000     married filing jointly or qualifying widow(er) $95,000 $115,000     married filing separately $0 $10,000     are not covered by an employer plan, but your spouse is covered married filing jointly $178,000 $188,000     married filing separately $0 $10,000     1. Taxes due 2012 Enter applicable amount from table above 1. Taxes due 2012 188,000 2. Taxes due 2012 Enter your modified AGI (that of both spouses, if married filing jointly) 2. Taxes due 2012 180,555   Note. Taxes due 2012 If line 2 is equal to or more than the amount on line 1, stop here. Taxes due 2012  Your IRA contributions are not deductible. Taxes due 2012 See Nondeductible Contributions , earlier. Taxes due 2012     3. Taxes due 2012 Subtract line 2 from line 1. Taxes due 2012 If line 3 is $10,000 or more ($20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan), stop here. Taxes due 2012 You can take a full IRA deduction for contributions of up to $5,500 ($6,500 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse's) compensation, whichever is less 3. Taxes due 2012 7,445 4. Taxes due 2012 Multiply line 3 by the percentage below that applies to you. Taxes due 2012 If the result is not a multiple of $10, round it to the next highest multiple of $10. Taxes due 2012 (For example, $611. Taxes due 2012 40 is rounded to $620. Taxes due 2012 ) However, if the result is less than $200, enter $200. Taxes due 2012         Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 27. Taxes due 2012 5% (. Taxes due 2012 275) (by 32. Taxes due 2012 5% (. Taxes due 2012 325) if you are age 50 or older). Taxes due 2012 All others, multiply line 3 by 55% (. Taxes due 2012 55) (by 65% (. Taxes due 2012 65) if you are age 50 or older). Taxes due 2012 4. Taxes due 2012 4,100 5. Taxes due 2012 Enter your compensation minus any deductions on Form 1040 or Form 1040NR, line 27 (deductible part of self-employment tax) and line 28 (self-employed SEP, SIMPLE, and qualified plans). Taxes due 2012 If you are filing a joint return and your compensation is less than your spouse's, include your spouse's compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. Taxes due 2012 If you file Form 1040 or Form 1040NR, do not reduce your compensation by any losses from self-employment 5. Taxes due 2012 39,500 6. Taxes due 2012 Enter contributions made, or to be made, to your IRA for 2013, but do not enter more than $5,500 ($6,500 if you are age 50 or older). Taxes due 2012 If contributions are more than $5,500 ($6,500 if you are age 50 or older), see Excess Contributions , later. Taxes due 2012 6. Taxes due 2012 5,500 7. Taxes due 2012 IRA deduction. Taxes due 2012 Compare lines 4, 5, and 6. Taxes due 2012 Enter the smallest amount (or a smaller amount if you choose) here and on the Form 1040, 1040A, or 1040NR line for your IRA, whichever applies. Taxes due 2012 If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8 7. Taxes due 2012 4,100 8. Taxes due 2012 Nondeductible contribution. Taxes due 2012 Subtract line 7 from line 5 or 6, whichever is smaller. Taxes due 2012  Enter the result here and on line 1 of your Form 8606 8. Taxes due 2012 1,400 What if You Inherit an IRA? If you inherit a traditional IRA, you are called a beneficiary. Taxes due 2012 A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Taxes due 2012 Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Taxes due 2012 Inherited from spouse. Taxes due 2012   If you inherit a traditional IRA from your spouse, you generally have the following three choices. Taxes due 2012 You can: Treat it as your own IRA by designating yourself as the account owner. Taxes due 2012 Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: Qualified employer plan, Qualified employee annuity plan (section 403(a) plan), Tax-sheltered annuity plan (s